Demystifying How The Protection & Indemnity (P&I) Club Functions
The shipping industry has its own internal system for insuring against third party liabilities, known as Protection and Indemnity (P&I) Clubs. To eplain this, Meena Mathews of GAC, was interviewed by Sajida Sheikh, our Manager – Marketing.
We all know that the P&I Club provides insurance to the shipowners and operates across countries. Tell us something about the club and how it operates from London and other parts of the world, and extends its services to every port in the world?
Let me start by explaining what a P&I Club is. “A P&I Club is an association of shipowners and charterers who have grouped together to insure each other on a mutual non-profit basis, for their third party liabilities.” P&I Clubs are non-profit making organizations with board of directors consisting of representatives from ship-owners and charter members of the Club. P&I Insurance was developed in London in the 1850s.
Each of the clubs have trusted correspondents in every port across the world. They are sometimes referred to as representatives, but they are not a department of the P&I Club. They are however an extremely important and valuable part of any P&I Club. Therefore choosing a correspondent is given a very high priority to ensure that those listed have the expertise and are the very best people in any particular location who can provide the highest quality service.
The club’s local correspondent provides a variety of services. They are appointed because of their thorough local knowledge, in the widest possible sense of the term. They must possess the ability to be in the front line and assist and co-ordinate the handling of a claim in their region, be able to protect the members’ interests and position, and continuously liaise to keep all parties informed of developments.
Who are the members of the P&I Clubs and what is the present membership size with the club?
Ship-owners and charterers are members of the P&I Clubs. Thirteen P&I Clubs worldwide form the International Group of P&I Clubs, and together they insure almost 90 to 95% of the world’s merchant shipping tonnage. Out of the thirteen International Group Clubs, eight of them are in the United Kingdom, two in Norway and one each in Sweden, Japan and the USA.
Are there any other clubs operational giving insurance cover to the shipping industry?
Yes, there are Fixed Premium Clubs and we are correspondents for some of them as well. However, our top principals are the IG Group Clubs.
What is the uniqueness of P&I Clubs from other forms of commercial underwriters?
P&I Clubs are non-profit making organizations unlike other insurance companies. A P&I Club is an association of shipowners who have come together to insure each other on a mutual non-profit making basis for all their third party liabilities. In mutual clubs, a member - shipowner insures each other to achieve optimum efficiency in the management of their money. There are no shareholders, so nobody expects a profit on their investments. The members only need to pay into the club sufficient funds to pay the claims experienced by the club, as well as the costs of the reinsurance facilities for the larger claims, and the actual running and administration costs.
The way in which a perfect balance between profit and loss is achieved by these clubs makes P&I insurance both unique and very viable for its members.
Apart from oil spills, what else does the insurance protect the ships from?
Plenty! Please note that oil spills and pollution claims are only one of the related problems. Shipowners could face claims such as for crew illness, injuries, death and of course, cargo claims which forms a major proportion of their claims. Collision claims i.e. collisions between two ships, or between a ship and a floating or fixed object, is yet another area of claim. Basically if there is any problem on board it is mandatory for the master of the ship to report the incident immediately to the nearest available correspondent either himself or through the vessel’s agent or to the owner/manager of the ship The P&I correspondent on notification of the incident will then take immediate steps to protect the member’s interests and provide the club and member with all the relevant technical information and advice.
What is the process of selecting a company? Are there guidelines, or do you take assistance from the port authorities?
There is a process, by which we assess our contractors. But it is more about building a relationship than filling forms. We do our own groundwork and investigation before we instruct a contractor. We look at the company's relationship with the port authorities and their background. We normally check with the port authorities if the company we intend to instruct are acceptable to them. If not, then the correspondent has to look for an alternative company. We always need the port's support, because they can levy heavy fines on the shipowner in the event of a pollution. One of our most important role is to reduce the costs and expenses as much as possible for our principals. Likewise, the IG Group Clubs also keep tabs on all aspects. They have regular meetings of their sub-committees in which they discuss major issues or problems that they have faced in a region and they exchange views and experiences on relevant incidents. Among other things they also discuss how the claim or problem was handled by their correspondent and whether the correspondent managed to do a good or bad job for them.
How do the clubs get to know about the job done?
Basically the local correspondent reports back to the club at every stage of the claim. For instance, if the port authority is not satisfied by the clean up operations, the correspondent will have to report this back to the club. We normally will appoint a surveyor to be on site, who reports periodically on the situation, the problems faced and its progress and developments. They are normally instructed to protect the interests of the member.
Are all the oil spills handled by an outside company or are the port authorities also involved?
Sometimes they insist on doing it themselves, however we always prefer using specialists. But we cannot really dictate. All we can do is ensure that when they undertake to do the job then they accept responsibility and liability for any problems that might arise because of it in the future.
In how many ports are GAC the listed correspondent and what is the footprint of your operation?
All the ports in the UAE. GAC are also the listed correspondents for some of the ports in the Middle East covering Kuwait, Oman, Bahrain and Qatar. We are also listed in Yemen, Mumbai in India, and some African ports. GAC quite frankly are the market leaders in the P&I correspondent business. Our offices handle all kinds of claims but if there is a major claim then the other offices immediately confer with us as we at GAC Dubai have a dedicated team of well experienced claims handlers. We believe in quality service to our principals 24 hours of the day, 365 days of the year.
When there is a disaster, who is the first person the ship gets in touch with? Is it the P&I Club?
Yes. The ship's master calls the vessel’s P&I Club or correspondent, or the master informs his owners who in turn calls the P&I Club or correspondent.